What is Inventory?
Stocks of materials
Stored capacity
Stock of items or resources used in an organization
What & Why of Inventory
Inventory, inventory, inventory.I am sick and
tired of hearing complaints about our inventory
levels and the costs associate

Inventory Decision
Making
Economic Order Quantity Models
Two basic approaches to the reorder decisions are the Qsystem and the P-system. With certainty demand and lead
times, they yield the same policies. With uncertain demand
and lead times, there are si

CLASSIFYING INVENTORY
MANAGEMENT PROBLEMS
Nature of Demand
Management Philosophy
1
Degree of Product Aggregation
Bottom-Up Approach
Top-down Approach
INVENTORY OBJECTIVES
Product Availability
Expected number of units out of stock annually
Service level =

PURCHASING DECISIONS IN SUPPLY CHAIN*
Colonial Clocks. Inc. produces and distributes through catalogs a line of
authentic mechanical clock reproductions.
Two clock styles M21 and K36 use the same clock mechanism R1063.
Because these mechanisms wear out or

Fixed costs: Optimal Lot Size
and Reorder Interval (EOQ)
D:
Annual demand
S:
Setup or Order
Cost
C:
Cost per unit
h:Holding cost per
year as a fraction of
product cost
H:
Holding cost per
unit per year
Q: Lot Size
T:Reorder interval
H = hC
2 DS
Q=
H
T=
2S

Dynamic Lot Sizing
Dynamic Lot Sizing
Another EOQ assumption:
Demand is constant over time
Dynamic Lot Sizing relaxes this
assumption
Demand is changing over time
But demand in each period is known (so
still deterministic).
1
Dynamic Lot Sizing
Examples:

Fixed Order Quantity Model
under Conditions of Uncertainty
Discrete Distributions
Fixed Order Quantity Approach
(Condition of Certainty): Simple EOQ
Model
Simple EOQ Model Variables
D = annual rate of demand
Q = quantity ordered (lot size in units)
S

Total investment Limit
Suppose an inventory is controlled by reorder point control policy under
conditions of demand and lead time certainty.
If a monetary limit is placed on all items carried at an inventory location, we
can state that,
n
Ci
i
Qi
L
2
Wh

Vector Smoothing Method For an Item
The items demands are grouped into several intervals and the probability of
an item demand falling in an interval is estimated initially with the existing
demand data. As new demands become available, the probability Va

Probabilistic Inventory
models
NEWSBOY/NEWS Vendor Problems
1
Inventory Control with Uncertain
Demand
The demand can be decomposed into two parts,
D = DDet + DRan
where
DDet = Deterministic component of demand
and
DRan
= Random component of demand.
2
Inve